De
Beers' advertising slogan, "A Diamond Is Forever," embodied
an essential concept of the diamond invention. It suggested
that the value of a diamond never diminishes and that
therefore a diamond never need be sold or exchanged.
This precept, of course, is self-fulfilling: As long
as no one attempts to sell his diamonds, they retain
their value ( assuming the cartel controls the supply
of new diamonds). When, however, an individual is forced
to defy this principle by attempting to sell diamonds,
the results can prove illuminating. Consider, for example,
the case of Rifkin's Russian diamonds.

In the fall of 1978,
a thirty-two-year-old Californian computer wizard named
Stanley Mark Rifkin discovered an ingenious way to become
a multimillionaire overnight. While working as a consultant
for the Security Pacific National bank in Los Angeles,
he had learned the secret computer code that the bank
used to transfer funds to other banks telegraphically
at the end of each business day. With this information
and his mastery of the bank's computer, he realized
that he could transfer tens of millions of dollars to
any bank account in America. The problem would be withdraw
the money from the system. In early October, he devised
a plan for siphoning this money out of the bank and
converting it into Russian diamonds.

The first step was
establishing an alias identity. Under the pseudonym
"Mike Hanson," Rifkin opened a bank account at the Irving
Trust Company in New York, arranged a phony passport
and other. documentation and retained a respected diamond
broker, Lou Stein, to acquire for him a multimillion
dollar consignment of diamonds from Russia. The Russian
diamond organization, Russ Almaz, agreed to sell "Hanson"
at its fixed wholesale price 115,000 perfectly cut,
round, brilliant stones for $8,145,000. For arranging
this low price, the broker took a standard 2 percent
commission, or $162,000. For the deal to be consummated,
Rifkin only had to wire the money to Zurich.

On October 25, Rifkin
coolly entered the bank's transfer room under the pretext
of inspecting the computer. He picked up a telephone
connected to the computer and dialed in the necessary
digits. Instantly, the computer withdrew $10,200,000
from a non-existent account and transferred it to the
account of "Mike Hanson" at the Irving Trust Company
in New York. Rifkin then had the New York bank transfer
$8,300,000 to the Zurich account of Russ Almaz.

A few days later, using
his phony passport, Rifkin flew to Switzerland, took
delivery of the diamonds, which weighed under five pounds,
and smuggled them through customs into the United States.
He then began contacting dealers in Los Angeles, but
none was willing to buy the diamonds.

Meanwhile, the Security
Pacific National Bank discovered that more than ten
million dollars was missing. It was one of the largest
bank robbery in history. The FBI, investigating the
loss, received a tip about Rifkin, and arrested him
in Carlsbad, California and found on him the Russian
diamonds, as well as the remaining cash.

Initially, bank officials
assumed that most of stolen money prudently invested
in diamonds would be easily converted back to money.
Only a few weeks earlier Newsweek had reported in a
cover story, "The Diamond Boom," that diamonds were
"the ideal asset" and that quality diamonds were soaring
in price. While the diamonds that Rifkin had bought
were commercial-grade stones used in jewelry. the London-based
Economist Intelligence Unit had such diamonds, which
had increased by at least 50 percent that year, were
still increasing in price. Independent appraisers estimated
that the diamonds, which Rifkin had bought at a low
price, were worth at least $13 million at the retail
level, and so the I bank foresaw that it might make
a profit of some $5 million with the reported appreciation
in value of the diamonds. In anticipation of this windfall,
they agreed to pay the ten percent custom tax on the
diamonds which Rifkin had evaded, as well as part of
the cost of the FBI investigation. Before this expected
profit could be realized, the bank had to await the
outcome of the trial, since the diamonds were important
evidence.

Finally, in September
1978, the bank announced that it would sell its hoard
of diamonds to the highest bidder. Twelve major dealers
were invited to the bank's vault to inspect Russian
diamonds. They were instructed to submit sealed bids
by the end of the business day on September 18. A minimum
price Of $7.5 million was established to encourage high
bids, though independent appraisers assured the bank
that the diamonds would fetch far more.

On the day of the auction,
bank officials anxiously waited to see how much profit
they would garner from the diamonds. However, only a
single bid had been submitted, and when it was opened,
it was for several million dollars less than the minimum.
The bank officials were disappointed at this turn of
events. Even though the diamonds had been purchased
through a reputable broker at wholesale price, no American
dealer would pay anywhere near this price nearly a year
later.

The bank offered to
sell the Russians back their own diamonds at the original
1978 Price. But they refused to buy the diamonds back
at any price.

The bankers learned
that two Israeli banks were also trying to sell large
quantities of diamonds received as collateral from Tel
Aviv dealers; and this might make it far more difficult,
if not impossible, for the Security Pacific Bank to
unload its 115,000 diamonds. So they decided not to
wait any longer.

Walter S. Fisher, the
vice-president of Security Pacific, was charged with
the responsibility of selling the 115000 diamonds. He
realized that diamonds were not a standardized, or fungible
commodity, as were gold, silver and platinum. Different
appraisals of the same diamonds varied widely dependent
on what the prospective buyer thought he could sell
them for. And, though all the bank's diamonds were commercial
stones for the mass market, Fisher found that it was
extraordinarily difficult to find a buyer. None of the
dealers in the United States were willing to buy such
a large consignment of diamonds. Fisher found it necessary
to deal through De Beers' main broker in London, I.
Hennig. Finally and accept the terms dictated by the
buyer, if he wanted to sell the diamonds. He then had
to deliver the diamonds to an unknown corporation in
Liechtenstein, G. S. G. Investments, without receiving
any money for them for eighteen months. These were terms
that the bank probably would not have accepted in selling
any other commodity. With a flourish of understatement,
the banker concluded, "Selling diamonds is far more
difficult than I had anticipated."

While the Security
Pacific National Bank's problem was made worse because
it had to dispose of the diamonds quickly, even when
diamonds are held over long periods of time, selling
them at a profit can prove difficult. For example, in
1970, the British magazine Money Which tested diamonds
as a decade-long investment. It bought two gem-quality
diamonds, weighing approximately one-half carat apiece,
from one of London's most reputable diamond dealers
for $1,000. For eight years, it kept these diamonds
in its vault, inflation ran As high as 25 percent a
year. For the diamonds to have kept pace with this inflationary
spiral, they would have had to increase in value at
least 300 percent. When the magazine's attempted to
sell the diamonds, the highest bid that received was
$1500 pounds, which led the publication to conclude
"As an eight-year investment the diamonds that we bought
have proved to be very poor."

In 1976, the Dutch
Consumer Association also attempted to test the price
appreciation of diamonds. They bought a perfect, over-one
carat diamond in Amsterdam, held it for eight months,
and then offered it for sale to the twenty leading dealers
in Amsterdam. Nineteen refused to purchase it, and the
twentieth dealer offered only a fraction of the purchase
price.

In 1972, financial
speculators in California had a very expensive lesson
in the value of diamonds. In January, the West Coast
Commodity Exchange began trading diamond contracts.
Each contract contained twenty carats of cut and polished
diamonds that were certified by diamond appraisers to
be in flawless condition. On the first day of trading,
speculators, assuming that the value of diamonds would
increase with inflation, paid $660 a carat for the diamonds,
or $13,200 per contract. Immediately thereafter, diamond
dealers began selling contracts on the exchange, and
the price plummeted down to the limit allowed by the
exchange for the next six days. The following week,
the price was down more than 40 percent. The diamond
dealers, who had offered the packets for sale at more
than $600 a carat, made a vast profit within days on
the falling prices. The speculators, who could not afford
to keep putting up cash to meet the collapsing prices,
lost everything. By the end of the second week, the
West Coast Exchange ended trading in diamond futures.
The value of diamonds, it turned out, could not be established
through an open market.

Even among experts,
the valuation of a diamond depends on highly subjective
criteria. In 1979, for example, New York Diamond Club
president William Goldberg, the president of the in
New York City, was offered a six carat diamond in my
presence by a reputable New York dealer. Both Goldberg
and the dealer agreed that the diamond had excellent
clarity, with no defects visible under a ten power magnifying
glass, a highly desirable blue-white color, and had
been expertly cut. The only disagreement was, in fact,
over the price of the diamond. The dealer believed it
was worth $24,000,. Goldberg, after consulting another
dealer, believed it was not worth $8,000. The value
was in the eye of the beholder ultimately.

Selling diamonds can
also be particularly frustrating for individuals. One
wealthy woman living in New York city decided to sell
back a diamond ring that she had bought from Tiffany
two years earlier for $100,000, and use the proceeds
to buy a necklace of matched pearls that she fancied.
She had read about the "diamond boom" in news magazines,
and hoped that she might make a profit on the diamond.
Instead, the sales executive with whom she dealt explained,
with a touch of embarrassment, that Tiffany had "a strict
policy against repurchasing diamonds." He assured her,
however, that the diamond was extremely valuable and
suggested another jewelry store. The woman went from
one leading jeweler to another, trying to sell her diamond.
One store offered her the opportunity to swap it for
another jewel, and two other jewelers offered to accept
the diamond "on consignment," and pay her a percentage
of what they sold it for, but none of the half-dozen
jewelers she visited that day offered her cash for her
$100,000 diamond. She finally gave up and kept it.

Retail jewelers generally
prefer not to buy back diamonds from customers because
the offer they would make most likely would be considered
ridiculously low. The "keystone," or markup, on a diamond
and setting may range from 100 to 200 percent, depending
on the policy of the store. If they bought diamonds
back from customers, they would have to buy them back
at the wholesale price. Most jewelers would prefer not
make a customer an offer that not only might be deemed
insulting but would also undercut the widely-held notion
that diamonds hold their value. Moreover, since retailers
generally receive their diamonds from wholesalers on
consignment and need not pay for them until they are
sold, they would not readily risk their own cash to
buy diamonds from customers. Rather than offer customers
a fraction of what they paid for diamonds, retail jewelers
usually recommend their clients to other firms

One frequently recommended
is Empire Diamonds, on the 66th floor of the Empire
State Building in midtown Manhattan. Empire's reception
room, which resembles a doctor's office, is usually
crowded with elderly women who sit nervously in plastic
chairs waiting for their name to be called. One by one,
they are ushered into a small examining room where an
appraiser scrutinizes their diamonds and makes a cash
offer. "We usually can't pay more than 60 percent of
the current wholesale price," Jack Braud, the president
of Empire Diamonds, explained. "In most cases, we have
to pay less since the setting has to be discarded and
we have to leave a margin for error in our evaluation
[especially if the diamond is mounted in a setting]."
Empire removes the diamonds from their settings, which
are sold as scrap, and resells them to wholesalers.
Because of the steep markup on diamonds between the
wholesale and retail levels, individuals who buy retail
and, ;n effect, sell wholesale often suffer enormous
losses on the transaction. For example, Braud estimated
that a half-carat diamond ring that might cost $2,000
at a retail jewelry store could only be sold for $600
at Empire.

The appraisers at Empire
Diamonds examine thousands Of diamonds a month but only
rarely turn up a diamond of extraordinary quality. Almost
all the diamonds found in Jewelry are slightly flawed,
off-color, commercial-grade diamonds. The chief appraiser
explained, "When most of these diamonds were purchased,
American women were concerned with the size of the diamond,
not its intrinsic quality." He pointed out that the
flaws were commonly concealed by the setting, and added,
"The sort of flawless, investment-grade diamond one
reads about is almost never found in jewelry."

Many of the elderly
women who bring their Jewelry to Empire Diamonds and
other buying services have been the recent victims of
burglaries or muggings and fear further attempts. Thieves,
however, have an even more difficult time selling diamonds
than their victims. When suspicious-looking characters
turn up at Empire Diamonds, for instance, they are asked
to wait in the reception room, and the police are called
in. In 1980, for example, a disheveled youth came into
Empire with a bag full of jewelry that he called "family
heirlooms." When Brand pointed out that a few pieces
were imitations, the young man casually tossed them
in the wastepaper basket. Braud buzzed for the police.

When thieves bring
diamonds to underworld fences, they usually get a pittance
for them. In 1979, for example, New York City police
recovered stolen diamonds with an insured value Of $50,000
that had been sold to a fence for only $200. According
to the assistant district attorney that handled this
particular case, the fence was unable to dispose of
the diamonds on 47th Street, and was eventually turned
in by one of the diamond dealers whom he had contacted.

While those who actually
attempt to sell diamonds often experience disappointment
at the low price they are offered, the stories circulated
in the press by N. W. Ayer continue to suggest that
diamonds are resold at enormous profits. Consider, the
legend created around the so-called "Elizabeth Taylor"
diamond. This pear-shaped diamond, which weighed 69.42
carats after it had been cut and polished, was the fifty-sixth
largest diamond in the world, and one of the few large
cut diamonds in private hands. Except for the fact that
it was a diamond, it had little in common with the millions
of small stones that are mass-marketed each year in
engagement rings and other jewelry. When Harry Winston
originally bought the diamond from De Beers, it weighed
over 100 carats. Winston had it cut into a fifty-eight-faceted
jewel, which he sold in 1967 to Harriet Annenberg Ames,
the daughter of publisher Moses Annenberg, for $500,000.
Mrs. Ames found it, however, extremely costly to maintain:
the insurance premium just for keeping it in her safe
was $30,000 a year. After keeping it for two years,
she decided to resell it and brought it back to Harry
Winston.

Winston advised Mrs.
Ames that he could not buy it back for the price for
which she had purchased it from him. She then called
Ward Landrigan, the head of Parke-Bernet's jewelry department,
and explained that because she did not want any publicity,
the diamond should be auctioned without her family's
name attached to it.

This caveat gave the
publicist that Parke-Bernet retained for the auction
the idea for a brilliant gambit. The huge diamond, which
would appear on the cover of the catalogue, would be
called "The No Name Diamond," and the buyer would have
the right to re-christen it. In August of 1969, Ward
Landrigan brought the diamond to Elizabeth Taylor's
chalet in Gstaad, Switzerland, and assured her that
it was the finest diamond then available on the market.
She expressed interest in it, and shortly thereafter
items were planted in gossip columns suggesting that
Elizabeth Taylor planned to bid up to a million dollars
for the No Name Diamond.

At that point, Robert
H. Kenmore, whose conglomerate had just acquired Cartier
in New York, saw the possibility of gaining considerable
publicity for Cartier by buying the No Name Diamond,
renaming it the Cartier Diamond and reselling it to
Elizabeth Taylor. He preferred to pay a million dollars
for it, so that the sale would be indelibly impressed
on the public's mind as the most expensive diamond ever
purchased. He arranged to borrow the million dollars
from a bank, and took the $60,000 interest cost on the
loan out of his conglomerate's public relations budget.

The auction was held
on October 2 3, 1969, and after sixty seconds of excited
bidding, the diamond was sold to Cartier for $1,050,000.
Harriet Ames received from Parke-Bernet, after paying
their commission and sales tax, $868,600, and Cartier
received the diamond. Four days later, Elizabeth Taylor
and her husband, Richard Burton, bought the diamond
from Cartier for $1,100,000 (which meant that Cartier
took a slight loss on the interest charge), and a few
days later the diamond was transferred to Elizabeth
Taylor's representative on an international airliner
flying over the Mediterranean to avoid any further sales
tax on the diamond.

Some ten years later,
when she was married to John Warner, the United States
senator from Virginia, Elizabeth Taylor decided to sell
this well-publicized diamond. She announced that the
minimum price was four million dollars, and to cover
the insurance costs for showing it to prospective buyers,
she further asked to be paid $2,000 for each viewing
of the diamond. At this price, however, there were no
buyers. Finally in 1980 she agreed to sell the diamond
for a reported $2 million to a New York diamond dealer
named Henry Lambert who, in turn, planned to sell the
stone to an Arabian client. The profit Miss Taylor received
from the transaction, after paying sales taxes and other
charges, was barely enough to cover the eleven years
of insurance premiums on it.

Most knowledgeable
diamond dealers believe that the value of extraordinarily
large diamonds, such as the one bought and sold by Elizabeth
Taylor, depends more on cunning publicity than the intrinsic
quality of the stone. An extreme example of this is
the seventy-carat diamond given to the Emperor Bokassa
in 1977 by Albert Jolis, the president of Diamond Distributors,
Inc. The Jolis family first negotiated a concession
to mine diamonds in 1947 in what was then the French
colony of Ubangi. Jolis's father, Jac Jolis, had made
the case to the State Department that an American company
should have the mining rights for diamonds in French
Central Africa, thus ensuring the United States a supply
of industrial diamonds. He even hired William Donovan,
the wartime head of the OSS, to represent his firm in
the negotiations. According to a declassified memorandum
from the American embassy in Paris, State Department
officials were persuaded that it was important for the
United States to gain "direct access to strategic materials
such as industrial diamonds." Eventually, with the assistance
of Donovan, Jolis's firm gained control over the alluvial
deposits of diamonds in Ubangi. In 1966, Bokassa, then
a colonel in the provisional gendarmes, seized power
in a military coup d'etat and proclaimed himself president
of what was then the Central African Republic. President
Bokassa agreed to continue the Jolis concession in return
for the government receiving a share of a profit. A
decade later, however, when Bokassa decided to become
emperor and re-christened the country the Central African
Empire, Jolis was given to understand that he was expected
to provide a "very large diamond" for the coronation.

As the coronation date
approached, Jolis found himself caught in a difficult
situation. His firm could not afford to spend millions
of dollars to acquire the sort of supervised diamond
that would put the emperor-to-be in a league with the
shah of Iran or the British royal family; yet if he
presented him with a small diamond, Bokassa might well
withdraw his firm's diamond concessions. Finally, Jolis
hit upon a possible solution to this dilemma. One of
his assistants had found a large chunk of industrial
diamond boart, weighing nearly seventy carats, which
curiously resembled Africa in shape. This piece of black,
poorly crystallized diamond would ordinarily have been
crushed into abrasive powder, and as such would have
been worth about $2 a carat, or $140. Jolis instead
ordered that this large diamond be polished and mounted
on a large ring. He then had one of his workmen set
a one-quarter carat white diamond at the point in the
black stone that would coincide with the location of
the capital of the Central African Empire. Finally,
Jolis placed the ring in a presentation box with a certificate
staring that this diamond, which resembled the continent
of Africa, was unique in all the world.

The following week,
though understandably nervous about how it would be
received by the mercurial Bokassa, Jolis flew to the
Central African capital of Bangui and presented the
ring. Bokassa took it out of the box, examined it carefully
for a moment, and took Jolis by the hand and led him
into a room where his entire cabinet was assembled.
He paraded around the table, jubilantly displaying to
each and every one of his ministers this huge black
diamond. He proudly slipped it onto his ring finger.
Jolis's mining concession was secure, at least temporarily
secure in the Central African Empire.

A few days later, the
emperor proudly wore the black diamond during the coronation
ceremony. The world press reported that this seventy-carat
diamond, which had cost Jolis less than $500, was worth
over $500,000. A piece of industrial boart was thus
elevated to being one of the most celebrated crown jewels
in the world. When the Emperor of Central Africa met
Giscard D'Estaing, the president of France, he extended
his black diamond to him as proof of his royalty.

The Bokassa empire
ended in 1979 when French paratroopers, on orders from
Paris, staged a bloodless coup d'etat and put the former
emperor and his retinue on a jet headed for France.
From there, Bokassa went into exile on the Ivory Coast
with his prize diamond ring.& When Jolis heard that
he retained among his crown Jewels the industrial diamond
he had presented him two years earlier, he commented,
"It's a priceless diamond as long as he doesn't try
to sell it."

The value of the Emperor's
diamond, like that of most other diamonds, depends heavily
on the perception of the buyer. If it is accepted as
a unique gem and a crown jewel, it could be auctioned
off for a million dollars. If, on the other hand, it
is seen as a piece of industrial boart, it will be sold
for $140 and used as grinding powder. It is, as Jolis
observed, "a two-tier market."